Federal Contractors Face Rising Debarment Threat
The number of suspensions and debarments of federal contractors is at an all-time high, and one veteran contracts lawyer called the current environment for these corporations, in a word: hostile.
Joseph West, co-chair of Gibson, Dunn & Crutchers government and commercial contracts practice, moderated a webcast Thursday that looked at the trends in government suspension and debarments of corporations.
He cited unprecedented pressure on agencies to suspend and debar government contractors, and congressional proposals that would institute sweeping changes in suspension and debarment, including reducing agency flexibility.
Then West asked three panelists to discuss this hostility in the regulatory environment.
Well, Im not feeling particularly hostile, quipped Noel Woodward, associate general counsel for procurement integrity at the Defense Logistics Agency.
She assured the audience that suspensions are not punitive in nature, but are meant to ensure that we protect the governments business interests.
But Woodward also said suspension and disbarment officers like herself try to convince Congress to keep flexibility in the process. We do not want automatic suspensions and debarments, because its a death knell for many companies, she said. And we want to make sure companies are given their due process.
Woodward serves on the Interagency Suspension and Debarment Committee, or ISDC, which coordinates federal agencies actions against contractors.
In the last fiscal year, the ISDC reported 928 suspensions, 2,398 debarments, and 2,512 other proposals for debarment, according to its annual report in September [PDF].
While debarments generally dont exceed three years, some 15 agencies imposed longer ones where circumstances warranted, the report said. Among them, the Departments of Agriculture and of Housing and Urban Development issued permanent or indefinite debarments.
West noted that even the Department of Justice has recognized that companies cant completely eliminate the possibility of fraud, especially when there can be a rogue employee.
Brian Baldrate, senior counsel with the Raytheon Company in Washington, D.C., said his company has about 75,000 employees and emergence of a rogue employee is always a scary issue.
Companies currently can be held responsible and can be liable for acts of their employees, Baldrate said. You can go in once and say it was rogue employee. But then six months later if you have a similar problem occur, they are going to be less understanding of that.
So the real challenge, he explained, is to come up with a compliance program and monitoring system to prevent that type of misconduct from recurring.
Michael Diamant, a partner at Gibson who focuses on white-collar criminal defense, spoke about the World Banks sanctions program and how best practices are converging no matter what the sanctioning agency.
Diamant also stressed that compliance violations create a sort of three-dimensional chess game for lawyers and their clients. There could be civil exposure, criminal law exposure, suspension and debarment exposure, he said.
He advised that corporations first decide what their priorities are, which agency they do the most business with, and then approach that agency. You need to map out where your exposures are, and who you go to first. He stressed that any deal could affect business relationships with other agencies.
West asked Woodward about the ISDC, and how much communication actually goes on between agencies.
She said there is an informal coordination procedure where, Ill go in to see who has the largest amount of contracts with that company, and [if its another agency] . . . Ill call up that agency and put it in touch with that company. We also inform other agencies that were looking at a company, without the company knowing.
West asked if sometimes an agency like the CIA ever came out of left field and said that you cant debar that company.
Woodward conceded that it has happened, though not necessarily with the CIA. We talk about it, she said, and sometimes the action has gone away because of that.
Woodward added that there are some companies that are historically linked to an agency, such as The Boeing Comapny to the U.S. Air Force, and well defer to that agency.
She also noted that a company can sometimes resolve a problem by entering into an administrative agreement. Some 16 federal agencies entered into 46 such agreements last fiscal year, according to the ISDC report.
Such agreements are solely within the discretion of the agency. They create an incentive for a company to improve its ethical culture and business process to avoid debarment.
And they usually require the company to implement enhanced internal compliance practices and ethics programs. An agreement can also require an independent third-party monitor or insist on the removal of individuals associated with a violation, the ISDC report says.
Finally, West turned to two law review articles that took different sides on whether there are companies too big to debar.
The panelists generally agreed that the concept is a myth. From a company perspective, any type of activity that could lead to suspension or debarment is taken very seriously. Our biggest customers are U.S. government agencies. Even actions short of debarment could still have significant consequencessuch as suspension, or a decreased view of our companys integrity. We dont want that.
To emphasize a companys integrity, Woodward advised that its generally a good idea to bring in someone from the top of the company to talk. An ethical culture has to permeate the company, and bringing in the head of the company is a good way to demonstrate that it cares about compliance.
West asked about voluntary disclosures, and when a company should do that.
Woodward replied, It never hurts to pick up the phone and say Hi and to have an informal conversation. Relationships are a good thing. And hypotheticals are just fine.
Noting that her office often receives False Claim Act files that are under seal and that must remain confidential, she added, If you want to run something by us, we want to be as transparent and helpful as possible. Were going to share with you as much information as possible. It [compliance] is not super-secret stuff.